What is Trading Authorization?

A trading authorization is a document that allows a third party to conduct transactions on behalf of the owner of an account. The text of the trading authorization defines the type of actions the third party may take on behalf of the account owner. Depending on the application, a trading authorization may provide the third party will full access to the assets of the account. In other situations, the authorization may be limited to specific types of transactions as defined in the text of the document.

There are essentially two types of trading authorizations. The first is known as a full trading authorization. This approach normally provides the third party with the ability to buy and sell securities included in the account in question. The third party may also remove assets from the account without having to consult the owner.

A limited trading authorization provides the third party with the ability to perform on specific types of transactions on behalf of the account owner or owners. In the case of investments, this usually means the third party may buy and sell securities at will. However, no securities may be moved into another investment account, even if the other account is also the property of the account owner in question.

A trading authorization works in the same manner as a power of attorney. The rights and responsibilities of the empowered party are spelled out in the document. All owners of the rights and property concerned must agree to the terms of the transfer of authority, and indicate their approval by signing the document.

The use of a third party authorization for trading is not an unusual situation. Investors who do not wish to manage their investment portfolio may choose to allow a trusted individual to manage the day to day buying and selling activity, and only step in when there is a need to move assets out of the account. A brokerage house will accept orders issued by the third party as if they came from the owner of the account, assuming the trading authorization is in order and considered legally binding.